The gold market in black and white

What effect has Decree 24/2012/ND-CP had on gold bar business management, particularly through recent restricted gold bar transactions?

One clear success is that the gap between domestic and world market gold prices has shortened from around VND5 million ($238) per tael to above VND3 million ($142). Price fever or gold bar scarcity did not incur. Transactions took place at prestigious and professional business entities, better ensuring people’s interests.

De-goldisation is a top target in gold market management. If the gold market was controlled through using rigid administrative measures it could widen the gap in domestic and world market gold price as well as the price gap between national gold brand and other gold brands in the domestic market. This could trigger group interests.

One question arises who will cash in on the current big price gap in the bullion market.

How should policies on gold management be revised for a stable gold market?

In my view, first, we should not allow a gold monopoly. People buy gold brands they like.

Management authorities should care for quality and should not say ‘yes’ to one brand and say ‘no’ to other brands. If a national gold brand is a must, we should present a specific brand carrying the State Bank seal and should not offer privilege to any particular business.

Second, it is important to establish a national gold exchange to unite domestic and world market gold prices. The gold exchange must be managed by the state. Gold would be listed as a kind of stock and both domestic and foreign investors can take part in market transactions. This will help drive down differences in gold prices and stop gold smuggling, while raising tax contributions.

Third, mobilising gold from the community for economic development is also important. This will entail bigger gold proportion in the foreign exchange reserves, helping the State Bank to have the initiative for market interference when necessary.

However, to raise gold from the community, there should be no hurdles for conversion of gold bars into gold certificates and vice versa. If people hoarding gold were taxed, it could generate counter effects, since this is Vietnamese people’s long-lasting habit.

Suitable interest rates for gold deposits will attract people to put their gold into banks. In the long-term, gold certificates would be securitised and be green-lighted for transactions in open-market operations and the secondary market.

Fourth, the State Bank shall directly import gold in specific periods to ensure stable market price. When sensitive factors on foreign exchange are under control, approving account-based gold trading is also needed to replace physical gold market transactions.

It is said that the State Bank will shortly establish a gold reserve fund and hike foreign exchange reserves with gold. Is that feasible?

In light of Decree 24/2012/ND-CP, the State Bank does not take part in gold market transactions directly for profits, but only acts as a market maker. If there is a need to buy gold, we should buy gold from overseas, not in the domestic market to avoid causing scarcity in gold supply which would scale up the gap in domestic and world market price.